Has Joseph Stiglitz Found a Way to Make Globalization Work? Probably Not A Review of “Making Globalization Work” by Joseph Stiglitz

by Nathan Shapiro

In recent decades, globalization has been the subject of intense debate.  These debates have generally centered on the plusses and minuses of globalization or the question of when globalization started.  Stiglitz does not take Judith Stein’s approach, which takes an exhaustive look at a certain time period, which was crucial to the development of globalization.  Stiglitz, in his aptly named book Making Globalization Work, does not engage in the “is globalization good or bad” quarrel.  Instead, he accepts that globalization is taking place and puts forth a detailed plan to as his book title implies, to make globalization work.

The book is partially a history of economic globalization as seen through the eyes of the author.  Stiglitz does not shy away from criticizing policy makers, even the administration he worked for.  More important than Stiglitz’s historical analysis are his recommendations for “making globalization work.”

The premise of Stiglitz’s thesis is based on an assumption that the correct way for globalization to work is how Joseph Stiglitz thinks it should work.  Thomas Friedman could write a book with the same title and provide very different recommendations.  This is not a criticism of Stiglitz, it is just necessary for the reader to know that they are not reading the solution to globalization, they are reading Stiglitz’s solution to globalization.  The reader should also be aware that Stiglitz is a Nobel Prize winner in economics, former Chairman of the Council of Economic Advisors under President Clinton, and former Chief Economist of the World Bank.  Therefore, while it is easy to find fault with many of his ideas, they are worth considering.

There are few people in the world who is more qualified to write about how to make globalization work than Stiglitiz, but who is it supposed to work for?  Stiglitz writes with a global perspective, and gives particular concern to developing countries.  This is not predominantly a book about how globalization can work for working-class people in Youngstown, Ohio.  Instead it’s about making sure that that developed countries do not abuse their power by using institutions such as the World Trade Organization (WTO) to undermine the welfare of developing countries.

Stiglitz frequently uses the word “fair” to assess globalization.  The word “fair” is emotionally charged and implies a clear winner and loser.  What Stiglitz is describing is the modern ethic that all people in all countries should have equal opportunities and more equal results.

Stiglitz does indeed have a strong argument that the current global trade regime does not promote global equality.  In many cases, the current global trade regime appears to be working against global equality.  Perhaps no sector of the global economy is as “unfair” as the agricultural sector.  US and EU agricultural subsidies have made it extremely difficult for farmers in developing countries to compete.  The average European cow receives $2 a day in subsidies.  Stiglitz points out that a majority of the people in developing countries make less then that (85).  Stiglitz is very critical of US agricultural subsidies that he says are used to help rich farmers.

Stiglitz suggests that subsidies to the wealthiest farmers be eliminated (87).  This would help make developing countries’ agricultural sectors more competitive.   Like many of proposals, the elimination of subsidies to richer farmers has almost no chance of materializing.  The US policy makers who establish subsidies are representing a constituency.  Developing countries are not a constituency of US policy makers.  It is very hard to imagine US policy makers making law to help developing countries at the expense of their own constituency.

Even beyond the agricultural sector, Stiglitz is highly critical of the current global trade regime and its impact on developing countries.  He feels that developing countries should be given preferential treatment in order to level the playing field.  Stiglitz proposes that that rich countries open up their markets to developing countries while allowing the developing markets to remain protected.  It seems that this would be unlikely to happen on a large-scale.  There are simply no incentives for rich countries to open up their markets without getting anything in return in the short term.  It could be argued that in the long term the advantage to developed countries would be more markets in developing countries, more opportunities for democracy, and greater global stability.

While Stiglitz’s focus is mostly on making globalization work for developing countries, he does briefly address the concerns of those in developed countries who have lost out due to globalization.  He does not, however, introduce any new ideas.  Instead, he emphasizes the traditional American liberal view, specifically, the need for people to receive a stronger safety net from the government (100).

Stiglitz is greatly concerned with the over-use of intellectual property law, especially Trade-Related Aspects of Intellectual Property Rights (TRIPs).  Stiglitz does not believe that intellectual property has a place in trade agreements (116-117).   He feels that intellectual property law, even within the US has gotten too strong.  In some cases it has perhaps gotten out of hand.  He notes that that “in India there is a lot of anger over the recent patenting of some yoga positions” and in the United States there is controversy regarding the patenting of genes (113).  Stiglitz believes that the intellectual property law of each country should be based upon the individual country’s needs, rather than be uniform across the globe.    Stiglitz’s case against intellectual property law in trade agreements is one of his strongest arguments, as the author makes the convincing argument strong intellectual property law only helps certain special interests.

What is often referred to as neo-liberalism, Stiglitz calls the “Washington Consensus.”  The Washington Consensus is focused on trade liberalization, and limiting the role of government.  Stiglitz does acknowledge that trade liberalization can make countries richer (68).  However, he also points out that for developing countries to develop, they need to protect their industries.  He gives the example of South Korea.  When South Korea started its steel industry, its comparative advantage was in rice growing.  The Korean government was at first very protective of its steel industry.  Only after it gained strength did it remove trade barriers (70).  The result is as of 2012 South Korea was the sixth largest producer of steel (World Steel Association).  Stiglitz also recognizes the critics of this tactic.  South Koreas was an unusual success story, and there is a danger of infant industries will “never grow up” (71).

Stiglitz addresses one of the most pressing global issues, climate change.  Stiglitz’s solution to this problem proposes that all countries impose a common carbon emissions tax on its population.  The revenue would go to the country imposing the tax.  As with most of Stiglitiz’s grand solutions, the common tax is not a realistic solution.  In a world where sovereignty rests at the state level, it is difficult to envision a scenario in which a common tax could be enacted in all countries.  Without a viable supra-national government, individual countries will need to take the lead in combating climate change.

Another concern of Stiglitz’s is corporate social responsibility.  He is specifically referring to multinational corporations.   Stiglitz contends that a corporation should not see its sole responsibility being to its shareholders.  Some corporations have started to make corporate social responsibility a part of their business model.  While many corporations do this for publicity reasons, Stiglitz contends that it has become more of a moral issue (198).

Currently, corporate social responsibility is voluntary.  Stiglitz, however, advocates the drastic step of making corporate responsibility part of corporate governance laws.  Under this new system, Stiglitz writes, “it should not, for instance, be a violation of their [corporate executives’] fiduciary responsibility to their shareholders for them to pursue good environmental policies, even if profits are thereby hurt” (203).  This may be Stiglitz’s boldest proposal.  While it is worth giving an individual with Stiglitz’s credentials some benefit of the doubt when it comes to economic matters, the consequences of such a shift in corporate governance laws are very significant.    Under Stiglitz’s new corporate law proposal a corporation could be very generous to its employees, its communities and the environment without worrying that its shareholders could sue the corporate executives for violation of a duty to pay attention only to shareholders’ interests.  This sounds good, if not utopian.  Stiglitz has gone too far with this proposal.  It should not be corporations’ responsibility to be socially responsible.  That is the role of government, to regulate corporations as needed.  If a corporation believes that it is in its best interest to help out in the community then they should do so, however corporate responsibility should ultimately rest with the government.  It is the job of corperations to make money for their shareholders.  It is the job of the government to protect and to serve its people.

Stiglitz’s concern with the development of developing countries continues in the author’s discussion on debt relief.  He says that developing countries over-borrow, and banks over-lend.  One of Stiglitz’s suggestions that seems reasonable is that a country should not have to pay back loans that were lent to the country when it was led by an oppressive dictator (228-231).  If a bank is carless enough to lend money to a dictator such as Idi Amin, it should not expect a subsequent regime to pay back Amin’s debt.

Stiglitz argues that there is a democratic deficit in many of the global institutions (281-282).  He proposes democratizing the IMF and World Bank by restructuring the voting system by giving developing countries more power.  While this may have a ring of equality and political correctness, Stiglitz fails to mention the fact that developing countries are usually corrupt, mismanaged, if not authoritarian.  Giving these countries more power may do more harm than good.

Inequality caused by globalization is the major theme of the book, and Stiglitz deserves credit for highlighting the inequality.  Unfortunately, many, if not most of his solutions to the problems are either unrealistic, or potentially do more harm than good.  Therefore, despite the optimistic title, the take-away of the book is that little can be done to make globalization work.

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